The organisation, called Disillusioned Conservatives (Campaign for Change), and formed by former Tory association executives, says the party has as good as lost the fight with New Labour and the Liberal Democrats.
Instead, it is drawing up policy options for what they call the "re-engineering" of the party to make it a modern, grassroots organisation for the millennium.
One of the founders, Phil Gott, who stood in the Wirral by-election, said: "We expect to lose the general election - I do not see any alternative to that."
He said the Government had shown no signs of listening to the complaints that his group believes are at the root cause of the Tories' current problems - arrogance in power, unwillingness to listen to the rank and file, and a lack of debate over Europe. As a result, the party was now in "terminal decline", said Mr Gott, a former association chairman.
He and other members of the campaign were now drawing up a detailed policy document which would be presented to the party after its defeat and would recommend radical reform.
Their ideas include a written constitution based on a one-person, one- vote system; regular balloting of party members on policy; complete reselection of MPs and MEPs before elections; and the election of the party chairman by members, who would also have a limited say in the election of the party leader.
Mr Gott said: "It is essential after election defeat that the party machinery be rebuilt from top to bottom. If anyone thinks that simply installing a new leader will solve our problems they have failed to see the real problem." And he went on: "It is very frustrating when the economy is so strong, to be losing an election we should not be losing. We are losing it because of arrogance and failure to involve people."Reuse content